OGC Op. No. 09-05-02

The Office of General Counsel issued the following opinion on following May 29, 2009 representing the position of the New York State Insurance Department.

RE: Life Insurance Company Guaranty Corporation of NY Protection of Annuity Contract

Question:

Would a New York resident who resides in Florida each winter, and who purchases a variable annuity contract in Florida that has a death benefit rider not available in New York from a New York authorized insurer, be protected by the LICGC?

Conclusion:

Yes. Under the circumstances presented, the owner of the annuity contract will be protected by the LICGC, subject to statutory limits.

Facts:

The inquirer’s parents are New York residents, but reside in Florida during the winter. While in Florida one winter, they purchased a variable annuity from a New York authorized insurer. The annuity contains what is characterized as a death benefit step-up rider, which is not available in New York. He asks if the annuity, including its rider, is protected under New York or Florida law in the event that the insurer becomes insolvent.

Analysis:

The LICGC is a not-for-profit membership corporation governed by Article 77 of the New York Insurance Law. LICGC is an entity separate and distinct from the Insurance Department, and has its own Board of Directors. Seewww.nylifega.org.

Article 77 applies to covered policies issued on or after August 2, 1985. The scope of Article 77 is set forth in Insurance Law § 7703(a) as follows:

(a) This article shall apply to direct life insurance policies, health insurance policies, annuity contracts, funding agreements and contracts supplemental to life and health insurance policies, annuity contracts or funding agreements issued to a resident by a life insurance company licensed to transact life or health insurance or annuities in this state at the time the policy, contract or agreement was issued or at the time it became an impaired or insolvent insurer, as the case may be.

Insurance Law § 7705(h) provides that all life insurance companies licensed to sell life or health insurance or annuities in the State of New York are members of the LICGC. Under Insurance Law § 7709, the LICGC is funded by assessments from its members only after a member insurer is declared insolvent by a court of law.

Under Insurance Law § 7705(k), to be qualified as a resident of New York with a policy protected under Article 77, the insured either must reside in New York at the time the LICGC member insurer is determined to be an impaired or insolvent insurer, or else be a resident of New York at the time the insurer issued a covered policy to the insured.

Because it is reported that the parents were residents of New York at the time the policy was issued, the LICGC should guarantee the annuity contract in question up to its limit no higher than $500,000 in benefits, provided that the owners are qualified to receive such benefits at the time of insolvency and remain qualified within the terms and conditions of the policy, as set forth in Insurance Law § 7708.

For further information, you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.